Euro Auto Bailout

Effectively giving the thumbs down to calls for nationalization measures, Steinmeier and Jean-Claude Juncker, Luxembourg's Prime Minister and head of the Eurogroup of single currency nations, demanded late on Monday, Nov. 17, that the EU members states should develop a common rescue package to help those car manufacturers stricken by the current economic crisis.

"If we agree on a common direction forward, we will remain strong within Europe and in our competition with other sectors in the world," Steinmeier, the Social Democratic (SPD) candidate for chancellor, said after meeting with the heads of Germany's largest auto manufacturers on Monday.

Juncker, in an interview with Germany's Bild newspaper, agreed.

"I agree with the idea of a rescue plan for the automobile industry on a European level," he said. "If the US government is prepared to gives billions of dollars to save Ford, General Motors and Chrysler before they fail, then we cannot simply watch and abandon our manufacturers in Europe.

"It now makes little sense for Germany, France or Italy to try to protect their automobile industry individually. That can only be done together," Juncker said.

European Commission chief Jose Manuel Barroso said Friday that the EU is ready to take action at the World Trade Organization if it judges that US aid for its struggling auto industry is "illegal."

The US Congress approved an aid package worth $25 billion (19.7 billion euros) in September to help the auto industry invest in new generation technology but no timetable was fixed for payments to be made.

Meanwhile, European automakers -- who have cast an envious eye at the US plan and called for similar action at home -- have been forced to close factories and cut jobs.

Protection needed to support healthy firms

"We must prevent healthy enterprises from becoming affected (by this crisis)," Steinmeier said. "Therefore, we must fight to keep the structures which made the automobile industry so strong in Germany from disintegrating."

Steinmeier's statements came as the European Investment Bank (EIB), the EU's lending arm, proposed to increase loans to Europe's ailing auto sector as part of a broader financing plan.

"The EIB will propose (to EU finance ministers) an increase of 20-30 percent, and that corresponds to 10 to 15 billion euros," more money for both 2009 and 2010 -- including help to small- and medium-sized businesses -- a spokesman for the Luxembourg-based bank told reporters.

The EIB has handed out an average of 2 billion euros in loans to the automobile sector in the past three years.

French Finance Minister Christine Lagarde, whose country currently holds the EU rotating presidency, said Monday that support for the sector was first of all a matter for the EIB, which was working on the dossier.

Steinmeier: German banks should use bailout

Steinmeier also urged the banking sector to provide more support for the car industry by being more generous in its granting of credit.

"One of the biggest threats to the auto industry is the current shyness of the banks to take risks," he said, adding that the financial package provided by the government for German banks was created for such purposes.

However, Peter Bofinger, a member of the German Council of Economic Experts, said the German government should consider putting the ailing manufacturer Opel under state control with a view to attracting private investors to support it once the financial crisis has abated.

Bofinger claimed that the fears that the nationalization of Opel could lead to calls for other companies to come under state protection was unfounded.

"With a temporary nationalization, I see little danger that other companies would follow," he said in an interview with the Munich's Merkur newspaper. "Most German carmakers and suppliers would have no interest in being temporarily taken into state ownership."

German Chancellor Angela Merkel spent most of Monday locked in discussions with Opel bosses but emerged from the lengthy negotiations without reaching a decision on potential state aid. Merkel told reporters that the issue would be debated again and that a decision would be made before Christmas.

Economic experts suspicious of nationalization

Otto Kentzler, the president of the German Confederation of Skilled Crafts (ZDH) supported the idea of temporarily nationalizing Opel, as it would "support and protect many jobs, not only in the automobile industry but in the manufacturing sector and supply industry."

But Mario Ohoven, the president of the Federal Association of Medium-Size Enterprises (BVMW) said he believes that smaller companies would suffer should the government support Opel.

"Medium-size enterprises die quietly and unnoticed while large-scale enterprises are saved by the state," he said, adding that Merkel risked making a huge mistake by providing the automakers with a billion-euro emergency parachute as more companies would then demand the same.

Volker Treier, chief economist for the German Chamber of Commerce and Industry (DIHK), said nationalization should only be used when there are no other options.

"Government interference should only be necessary in a crisis as the last resort and then only if areas of the national economy are in danger without this nationalization," he said.